As known, checks are negotiable instruments drawn against deposited funds that order a bank to pay a specified amount of money to a specified person on demand. Check collection, or “check clearing,” facilitates payment by moving checks from the banks where the checks are deposited (“receiving banks”) to the banks on whose accounts the checks are drawn (“paying banks”), and then moving the payment in the opposite direction. This credits accounts at the receiving bank and debits accounts at the paying bank.
The passing of the Check Clearing for the 21st Century Act (“Check 21”) by Congress allowed recipients of paper checks to create a digital version of the paper check called an Image Replacement Document (“IRD”). Under Check 21, IRDs, officially named “Substitute Checks,” became a legal substitute for original paper checks. The IRDs include front and back images of the original checks, together with other data presented by a magnetic ink character recognition (“MICR”) line along the bottom of the IRD, where such other data typically includes the routing and transit number, the check-writer's account number, and/or the dollar amount of the check.
Businesses and banks can work strictly with IRDs, transfer paper copies to IRDs, or in some cases use paper copies of the IRDs when exchanging the files between member banks, savings and loans, credit unions, services, clearinghouses, and the Federal Reserve Bank (“Fed”). Additionally, a process known as “remote deposit” allows customers to upload the digital images of checks to the depositing institution directly, in order to get their account credited. This is accomplished through electronic deposit of checks through an Automated Teller Machine (“ATM”), a process known as an electronic funds transfer (“EFT”). Some banks don't have the ability to create or process digital images. In such cases, third-party companies offer image processing services to these banks. The advent of Check 21 has greatly reduced check processing costs for banks, while speeding up fund transfers and reducing float time.
To oversee the EFT and establish consumer protections the United States Federal Reserve has established a number of regulations that sets rules, liabilities, and procedures for EFT systems. One such regulation is Regulation E. Generally, this regulation prescribes rules for solicitation and issuance of EFT debit cards, governs consumer liability for unauthorized transfers, and requires financial institutions to disclose annually the terms and conditions of EFT services. Specifically, it establishes the requirements for error resolution procedures for errors on EFT related accounts. Other countries likely have their own rules and regulations for EFT systems and the handling of errors arising therein.
An error in relation to an EFT, such as where funds were taken from an account by another's unauthorized transfer, or where a transfer was posted improperly due to a bank bookkeeping error, (e.g., funds were not properly deposited in the account holder's account), fall under the error resolution provisions set forth in Regulation E. Under these provisions, an account holder can have the error associated with the EFT corrected by notifying the financial institution holding the account. Once notice is given, the account holder's bank has ten (10) business days from the time the complaint is logged to investigate, and if necessary correct the error. If the bank cannot fix the error, the bank must supply provisional credit to the account holder. Provisional credit is a temporary redeposit of funds in a disputed EFT while the transaction is being investigated. After the ten (10) day investigation period and the deposit of provisional credit, the financial institution has up to forty-five (45) days in most transactions to investigate the alleged error. The consumer's account liability is limited by regulation to $50 if the financial institution is notified of the error, but otherwise can be as high as $500, if the financial institution is not timely notified.
Unfortunately, there are sometimes gaps throughout the EFT processing and settlement process, such as accounting errors and lost images, whereby checks are not properly debited and credited in the appropriate accounts. Specifically, errors in processing may occur at ATMs or other remote deposit locations when a customer is trying to deposit a check. For example, if power is lost to an ATM when a check image is being processed the transaction is terminated and the check being deposited is not properly captured electronically. In other scenarios the image scanning device may not be able to read the MICR data, or properly capture the image of the check. In these or other situations, a check may not be returned to the customer, but instead may be dropped into a rejected checks bin inside the ATM. Depending on the specific procedures at relative banks these checks may, at some banks, go weeks or months before they are processed and in some cases they are never processed at all.
There is a need to develop apparatuses, systems, and methods to process rejected checks in an efficient manner, improving on speed and customer satisfaction, while reducing the cost associated with processing rejected checks.